Turbo Tax Estimated Tax Question?

[RetiredAndLovingIt]

Turbo Tax is asking me "How much of your 2020 estimated taxes did you pay in 2021?" I only paid the amount owed on my 2020 tax return in 2021, is that the number they're asking for? I had a refund due from the previous years return which I applied to my 2020 taxes so I never paid any estimated taxes.
I don't remember them ever asking me this question before, I suspect they think I might owe a penalty of some kind.

[Sunset]

I don't use Turbo Tax.

Maybe they are thinking you made estimated tax payments for 2020 , and the last one was due Jan 15, 2021

It might be trying to make sure people don't count that last payment for tax year 2020, as a payment for the current tax year of 2021.

[target2019]

Quote:

Originally Posted by RetiredAndLovingIt Turbo Tax is asking me "How much of your 2020 estimated taxes did you pay in 2021?" I only paid the amount owed on my 2020 tax return in 2021, is that the number they're asking for? I had a refund due from the previous years return which I applied to my 2020 taxes so I never paid any estimated taxes. I don't remember them ever asking me this question before, I suspect they think I might owe a penalty of some kind.

I use TurboTax Home and Business. Shouldn't make a difference.

Did you pay estimated taxes in 2021 for 2020? If you did not, then the answer is -0-.

The amount owed for 2020, and paid in 2021 is recorded in the program, but does not apply to this question.

BTW, if you search for turbotax and your question, you'll probably see results in your search engine which are relevant, particularly ftom the turbotax forum.

[N02L84ER]

Turbo tax asked me that question. I do not remember that question on past filings. I did make a $450 state estimated tax payment in January of 2021, so I entered that number. Nothing changed in the calculations for the Federal Tax. I do not know why they asked it. I have not yet started my state tax return.

They also asked about "distributions from IRAs, Roths, or 401Ks taken in 2019, 2020, 2021, and 2022" to determine if the IRA contribution made for TY 2021 qualified for the Retirement Savings Credit, I think. We did Roth Conversions in 2019 and 2020. Does anyone know if the conversions are considered "distributions" for this question?

[SecondCor521]

Quote:

Originally Posted by N02L84ER Turbo tax asked me that question. I do not remember that question on past filings. I did make a $450 state estimated tax payment in January of 2021, so I entered that number. Nothing changed in the calculations for the Federal Tax. I do not know why they asked it. I have not yet started my state tax return.

State income tax payments are deductible on Schedule A in the year paid. This is true whether it's state tax withholding, state estimated taxes, or state income tax balances due paid with the return.

A state income tax payment made in January 2022 for the 2021 tax year would be deductible on the federal Schedule A for 2022, not 2021.

Since most people don't itemize currently, most of the time it doesn't matter. But when it does matter, TT and other tax software is trying to get to the correct number.

Quote:

Originally Posted by N02L84ER They also asked about "distributions from IRAs, Roths, or 401Ks taken in 2019, 2020, 2021, and 2022" to determine if the IRA contribution made for TY 2021 qualified for the Retirement Savings Credit, I think. We did Roth Conversions in 2019 and 2020. Does anyone know if the conversions are considered "distributions" for this question?

It appears not.

The instructions for line 4 of Form 8880 list several exceptions that should be excluded. One of those bullet items reads:

"Distributions from your eligible retirement plan (other than a Roth IRA)
rolled over or converted to your Roth IRA."

-- https://www.irs.gov/pub/irs-pdf/f8880.pdf page 2 column 2

The general idea here, I think, is that one shouldn't be able to contribute to an IRA then immediately take a distribution (or vice versa) and still get the RSCC. It is, after all, intended as a credit for people saving money for retirement, and shuffling money into and out of an IRA with no actual net contribution isn't really doing that.

[N02L84ER]

SecondCor521 Thank you very much. Both of those explanations make sense to me.

[Letj]

Quote:

Originally Posted by SecondCor521 State income tax payments are deductible on Schedule A in the year paid. This is true whether it's state tax withholding, state estimated taxes, or state income tax balances due paid with the return. A state income tax payment made in January 2022 for the 2021 tax year would be deductible on the federal Schedule A for 2022, not 2021. Since most people don't itemize currently, most of the time it doesn't matter. But when it does matter, TT and other tax software is trying to get to the correct number. It appears not. The instructions for line 4 of Form 8880 list several exceptions that should be excluded. One of those bullet items reads: "Distributions from your eligible retirement plan (other than a Roth IRA) rolled over or converted to your Roth IRA." -- https://www.irs.gov/pub/irs-pdf/f8880.pdf page 2 column 2 The general idea here, I think, is that one shouldn't be able to contribute to an IRA then immediately take a distribution (or vice versa) and still get the RSCC. It is, after all, intended as a credit for people saving money for retirement, and shuffling money into and out of an IRA with no actual net contribution isn't really doing that.

Interesting comment about state income tax payments. In my case I significantly over estimated my 2021 tax payments but realized that in 4th quarter so didn’t do a January 2022 payment. I can’t imagine that the grossly over stated estimates I paid plus withholding are deductible in 2021. I would think only up to your tax liability is deductible? Correct?

[cathy63]

Quote:

Originally Posted by Letj Interesting comment about state income tax payments. In my case I significantly over estimated my 2021 tax payments but realized that in 4th quarter so didn’t do a January 2022 payment. I can’t imagine that the grossly over stated estimates I paid plus withholding are deductible in 2021. I would think only up to your tax liability is deductible? Correct?

No, everything you paid to the state during calendar year 2021 is deductible in 2021, subject to the $10K deduction limit on state and local taxes. The refund you receive from the state during 2022 is taxable income on your 2022 Fed return to the extent that you benefitted from deducting it in 2021.

[Letj]

Thanks Cathy! So I am getting a refund for historic tax credits plus overpayments. That portion won’t be taxable correct? If it weren’t for those I would be paying quite a bit of taxes. Is it safe to safe I won’t have a refund to report on 2022 tax return?

[cathy63]

Quote:

Originally Posted by Letj Thanks Cathy! So I am getting a refund for historic tax credits plus overpayments. That portion won’t be taxable correct? If it weren’t for those I would be paying quite a bit of taxes. Is it safe to safe I won’t have a refund to report on 2022 tax return?

I don't have enough information to answer that. Here are a couple of examples that may help.

If you paid $20K in estimated state tax payments during 2021, and your actual state tax liability turned out to be $12K, then you'll get an $8K refund sometime in 2022. That $8K is not taxable on your 2022 Fed return, because you didn't get to deduct it on your 2021 return -- the max you could have deducted was $10K, and your state tax liability was greater than that.

If you paid $20K in estimated state tax payments during 2021, and your actual state tax liability turned out to be $6K, then you'll get a $14K refund sometime in 2022. Up to $4K of that may be taxable on your 2022 Fed return if you itemized in 2021. It also depends on property taxes, local taxes, general sales taxes ... there are worksheets and calculators to help figure it out.

The basic theory is that you can't send a whole bunch of money to your state, take that as a deduction on your Fed return and then have the state send a lot of the money back to you tax-free. That would be a great tax avoidance strategy, but it's a loophole that was closed long, long ago.

[Letj]

Thanks. That was helpful.